Costa Rica Adopting Dollar as It’s Currency?

Costa Rica News – Well this could mean that all those people that are looking at trying to escape the USA by coming to Costa Rica will have yet another tie to home. Costa Rica is weighing up the possibility of adopting the dollar as its currency.

Salvadoran economist Manuel Hinds discussed in Costa Rica the pros and cons of dollarization, using the example of El Salvador and Panama.

A newspaper from El Salvador reported that “many government economists advocate keeping their local currency because they believe that inflation will remain low, but Hinds explained that the opposite happens.

In the region, El Salvador, and Panama, which are dollarized, have the lowest inflation rates while countries like Argentina and Venezuela have an inflation rate of more than two digits (25% and 10% respectively) while last year, inflation in El Salvador was only 0.8%. ”

“The expectation in the financial sector is that by keeping the local currency interest rates will be lower, but International Monetary Fund data indicates that they are higher in countries with monetary policy.”

Honduras for example had a real lending rate of 11.3% in February of this year, while in El Salvador it was only 3.8%. ” According to the economist, “interest rates in a country’s own currency are more variable”.

What are your opinions for people currently living in Costa Rica or thinking of moving here?

5 comments

Joe de Tambor2013/06/12 - 8:38 pm

If this change happens will it result in large scale unemployment? Banks will only need one-half the number of tellers they now employ because there will no longer be the time it takes for the *Tipo de Cambio* confusion and *miss-counting* arguments to be resolved! 😉

That an economist, Salvadoran at that discusses pros and cons of dollarization mean that CR will adopt the US dollar as its currency? Not by a long stretch of the imagination will the Tico government do away with its own, funny or otherwise money to continue doing as it pleases financially speaking,
The proposal was first advanced in the 80’s by presidential nomination contender, Rolanda Araya, who was promptly done in by a dirty campaign trick, many claim from the Oscar Arias camp, that tied him with drug dealers.
There have been one or two other Costa Rica economists who have advocated the change. The proposal did not gain any ground, I wouldn’t bet on it.
As I wouldn’t exactly equate changing to a foreign currency escaping the USA; whether you have to convert greenbacks for local currency has little to do with it.

If being dollarized has been so good for El Salvador and Panama, why was Panama driven to mint 40 million one-dollar value *Balboa* coins last year? That may be a revolt against importing more devalued US paper dollars that weaken the purchasing power of Panamanians. Up until last year the highest denomination of *Balboa* coins was 50 cent value. Rumors are that Panama is considering minting a two-dollar value *Balboa* coin. Of course, Panama can’t legally print US dollars but it can legally mint its own coins.

Panama has always pretended it has its own currency simply by calling dollars Balboas, having its own coinage contributes to that illusion and minting 40 million $1 coins doesn’t amount to much in macro- economic terms, what with a a growing economy and GDP of $57+ Billion
GDP $57.079 billion (2012 est. PPP)
GDP growth Increase10.6% (2012 est.)
GDP per capita $15,300 (2012 est.)
8.8% 5-year compound annual growth